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The Future Of Fashion Retailing, Revisited: Part 3 - H&M

In late 2012, I wrote a three-part series on Uniqlo, Zara and H&M. All three fashion leaders were already well-established internationally and had initiated strategies for penetrating the U.S. retail market. In my 2015 update, I have been assessing their progress and what it means for investors.

Having already taken a look at where Uniqlo and Zara are today in parts 1 and 2 of this “revisit,” I’m now examining H&M, which can be seen as a hybrid between the fast fashion model of Zara and the long-view approach of Uniqlo. This combination has proven itself to be a winning approach, to the delight of H&M and its investors.

And with its quick and nimble supply chain, smart pricing, an expanding product line and optimized mix of great stores and e-commerce, H&M continues to look like a pretty safe bet for retail investors.

The best of both worlds

H&M releases two main collections each year: one for the spring and one for the fall. But throughout the year, the company releases many sub-collections that allow it to jump on new trends that appear during any season. It breaks down like this: the primary collections are the long-lead items with more enduring looks (a la Uniqlo), while the sub-collections are trend chasers with short lead times (a la Zara).

Johan Jeppsson/Bloomberg

This hybrid approach gives H&M the ability to be deliberate with its heavy-hitters, while allowing it to be agile enough to score quick wins with the trendy items. Either way, the key to success here is that H&M takes very few, if any, chances when it releases a new product. They have a strong focus on using the reams of customer data they have, using it to nail exactly what it is consumers want from each item and delivering it at the right times.

Both the long-lead time and fast fashion offerings rely on an agile supply chain to be delivered at prices that customers will pay. Through complete IT integration between its partners/suppliers and core offices, the entire organization can quickly get on board to quickly produce clothing that is on-trend.

Bricks before clicks leads to impressive U.S. growth

I’ve talked a lot about how retailers that fail to develop a strong multichannel strategy – with a focus on online and mobile shopping – are likely to fail. But just like Uniqlo, H&M is flouting the rules and thriving, despite its being late to the e-commerce game. It opened its U.S. web store in 2013, long after many of its competitors, Bloomberg reported. Why was it so late?

Essentially, H&M was more focused on providing an excellent in-store experience, or as Bloomberg put it, the retailer was “betting on stores and hedging with its website.” The results: Fortune Magazine found that after H&M opened 51 U.S. stores in 2014, total sales in the country jumped 26 percent. That’s not to say that the website was just an afterthought: Essential Retail reported that the website contributed to a 13 percent U.S. sales increase in 2013, signifying that customers are responding well to the e-commerce side of things. As H&M continues to find the right balance between bricks and clicks, it’s likely that these sales will keep growing as customers are more able to shop the way they want.

All this exploration has paid off well for the retailer’s investors as well: H&M started off this year with strong profit growth, with post-tax profits increasing 36 percent to $451.3 million. More telling is that the Q1 2015 gross margin of 55.2 percent is up from 54.9 percent last year – a jump that could be reflective of more store locations, a developing e-commerce platform and accurate, data-driven pricing.

H&M’s big plans for further growth

H&M has already put other established fashion titans – including Uniqlo and Zara – on notice with its blend of fast fashion and long-lead items. But it’s not just stopping at apparel. H&M has big plans to move into other product categories, like sportswear, makeup and home goods.

Just looking at the sportswear category, H&M boasts some considerable advantages that could quickly make it a leader in this space. A report from Bloomberg explained that the margins in sportswear are already high due to the relatively cheap materials (polyester, spandex, nylon) used in most popular items. And when you consider H&M’s pricing prowess, the impact on the company’s profits could be staggering. Additionally, Zara has been slow to enter the sportswear field, meaning H&M could be the earliest fast fashion mover here.

H&M’s incredible growth can be attributed to a flexible and agile supply chain, smart pricing, expanding product lines and an increasingly optimized mix of great stores and e-commerce properties. For investors in the retail space, H&M looks like a pretty safe bet.

From early on Greg realized there was a better way for retailers to make decisions, and devoted himself to revolutionizing the retail industry. With decades of experience

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From early on Greg realized there was a better way for retailers to make decisions, and devoted himself to revolutionizing the retail industry. With decades of experience in retail, economics and growing SaaS businesses, Greg has helped to build First Insight, a technology company transforming how retailers make product and pricing decisions, into the world’s leading platform for creating differentiated products. Greg has extensive knowledge in the retail and technology industry, having held previous roles at i2/JDA, Saks, Inc. and Macy’s. His expertise and dedication to the industry have been touted at events including the NRF Big Show and WWD CEO Summit and in publications such as Wall Street Journal, Fortune, Forbes, CNBC and the Financial Times where he’s discussed how retailers can navigate today’s disruptions. Recently Greg was recognized as one of NRF’s “25 Most Influential People in Retail” and as Ernst & Young’s “Entrepreneur of the Year” and sits on the Board of Advisors for the Fashion Institute of Technology (FIT) part of the SUNY School system. Greg holds both an undergraduate degree in Economics and a MBA from The University of Pittsburgh and Katz Graduate School of Business and is a frequently requested keynote speaker.